Deck 8: Government Intervention Versus Free Markets

Question 1

Which of the following statements about the senior citizen population in the United States is true?

A) The highest expenditures on health care per capita occur with the older segment of the population.
B) The elderly make up a smaller percentage of the total population than 20 years ago.
C) Senior citizens do not hold much clout with legislators.
D) Senior citizens, as a group, have shorter lifespans than in previous decades.
E) The elderly consume one-half as much health care per capita as the rest of the population.

Answer 1

The highest expenditures on health care per capita occur with the older segment of the population.

Question 2

Health economics is important to study for all of the following reasons except:

A) Spending for health care in the U.S. exceeds $2 trillion.
B) Health care expenditures have risen from 5.9% of GDP in 1965 to over 16% of GDP today.
C) Only 1% of the population account for almost 30% of total health care expenditures.
D) The elderly are the smallest users of health care, and the young are the major users.
E) None - all of these are true.

Answer 2

The elderly are the smallest users of health care, and the young are the major users.

Question 3

Many people claim that the free market fails regarding all of the following except:

A) health care
B) fast food restaurants
C) the environment
D) illicit drugs
E) none - the free market has failed regarding all of these

Answer 3

fast food restaurants

Question 4

In a market system, those who own the most highly valued resources

A) have the highest incomes.
B) pay the largest share of income taxes.
C) support charitable organizations in the community.
D) employ the greatest numbers of people.
E) pay the highest property tax.

Question 5

The market system is ____ the most efficient allocation system.

A) always
B) generally
C) sometimes
D) almost never
E) never

Question 6

When economic profit is ____, the firm will ____.

A) positive; face new competition
B) positive; enjoy large economic profits for a long time
C) negative; cease to exist
D) negative; face new competition
E) zero; go out of business

Question 7

Much of the debate between free market economists and non-free market economists over health care lies with the idea that

A) universal health care in the United States has never been proposed before 2010.
B) many people would choose not to purchase health insurance.
C) health care is a right.
D) if government provided health care, the amount spent on health care would increase tremendously.
E) the great majority of U.S.-developed biopharmaceutical products are not first marketed in the U.S.

Question 8

When competition is limited, i.e., entry restricted, consumers pay ____ prices and have ____ quantity of the product.

A) higher; more
B) higher; less
C) lower; more
D) lower; less
E) the same; the same

Question 9

With regard to health care spending patterns, we can say that

A) everybody demands the same basic level of health care.
B) men demand much more medical care than women.
C) the elderly need much less health care than adults do.
D) only a few people (less than 5 percent) consume more than half of all health care expenditures.
E) health care spending varies dramatically according to government's willingness to pay for such services.

Question 10

Free market economists argue that

A) markets will not adjust to a demand shock without government intervention
B) government intervention is necessary to get the economy back on track
C) markets will adjust to a demand shock without government intervention
D) central planners are best equipped to handle external shocks and get the economy back on track
E) it would take government too long to intervene and get the economy back on track.

Question 11

Medicaid is a joint

A) state-local program that provides crisis intervention.
B) state-federal program that provides health care based on age and disability.
C) public-private partnership that helps cut health care expenditures.
D) state-federal program that provides health care based on need.
E) U.S.-Canadian partnership that is an experiment in national health care.

Question 12

Which of the following is not one of the classifications of current economic thinking?

A) Keynesian economists
B) Reaganomists
C) Marxists
D) free market economists
E) All of these were presented as current schools of thought.

Question 13

In a free market system for health care, which would not occur?

A) Those who could not pay would not receive health care.
B) Those who need health care would receive health care in the Emergency Room.
C) There would be many uninsured young people.
D) The supply of health care would increase.
E) The demand for health care would decrease.

Question 14

What is the main reason many economists do not believe in or trust the free market?

A) the speed with which a free market adjusts to changes
B) market failures
C) special interest groups influence politicians
D) natural resources are over-used
E) statistical discrimination is costly

Question 15

The third-party payment system for health care creates

A) a higher demand, and therefore higher prices for health care.
B) a lower demand, and therefore lower prices for health care.
C) an increased supply, and therefore lower prices for health care.
D) a decreased supply, and therefore higher prices for health care.
E) no change in the market for health care.

Question 16

The largest publicly sponsored health care program is

A) Medicare.
B) Medicaid.
C) Head Start.
D) social security.
E) Health maintenance organization (HMO).

Question 17

Who believes that unfettered markets will work best for society?

A) Milton Friedman
B) John Maynard Keynes
C) Paul Samuelson
D) both Milton Friedman and Paul Samuelson
E) both John Maynard Keynes and Paul Samuelson

Question 18

All of the following are reasons for health care expenditures in the U.S. rising except:

A) the demand for health care has risen.
B) the supply of physicians is restricted by the American Medical Association
C) the government (FDA) restricts entry of drugs to the U.S. marketplace
D) health insurance is regulated on a state-by-state basis so someone cannot buy a less expensive policy from an insurer in another state
E) the federal government has had such a small role in health care.

Question 19

What proportion of the United States' current GDP do health care expenditures represent?

A) More than 16 percent
B) Between 5 and 10 percent
C) Less than 5 percent
D) Between 10 and 15 percent
E) More than 25 percent

Question 20

Which of the following statements best describes the government's role in health care?

A) The government has no role in health care.
B) Health care spending varies tremendously, and it is too difficult to determine what percentage of the spending comes from the government.
C) Government spending on health care constitutes about 45 percent of the total.
D) While Medicare and Medicaid are government programs that provide health care for many who could not otherwise afford it, the amount spent is less than 20 percent of the total spent on health care.
E) Private sources account for more than 95 percent of the total spent on health care.

Question 21

Health care

A) is a part of human right.
B) is something that everyone entitled to regardless of costs.
C) is a public good, which should be provided by the government.
D) is a scarce good and is subject to the laws of economics.
E) None of these choices.

Question 22

The aging of the population stimulates the demand for

A) luxury vacation cruises.
B) real estate in foreign countries where the cost of living is cheaper.
C) health care.
D) rock music.
E) television classics.

Question 23

All of the following are reasons that the supply of medical care has decreased except

A) increased usage of expensive, high-tech medical equipment and procedures.
B) that the demand for medical services has increased.
C) a decrease in the number of hospital beds.
D) that physicians are charging higher fees.
E) advertising restrictions imposed by the American Medical Association (AMA).

Question 24

The fact that world leaders come to the United States when they need medical care demonstrates that

A) the world leaders are rich.
B) the world leaders are able to obtain health care from a government-provided system.
C) the world leaders also receive Medicare.
D) the market system must provide the best medical care.
E) the United States is the richest nation in the world and thus has the best hospitals.

Question 25

Physicians affect the cost of medical care through their fees. Expenditures on physicians' services rose more rapidly than any other medical expenditure category in the 1980s and 1990s. Factors that have led to rising physicians' fees include all of the following except:

A) an increase in demand relative to the supply of certain types of physicians.
B) ability of physicians to restrict price competition.
C) government setting many of the physicians' fees.
D) the cost of malpractice insurance.
E) decrease in supply of physicians.

Question 26

If more new physicians are entering the field of anesthesiology, the most probable reason is that

A) the rate of return for medical education in anesthesiology is substantially higher than in other fields.
B) anesthesiologists have more time to play golf and go surfing than other specialists.
C) more anesthesiologists are exiting the field and retiring.
D) anesthesiologists work fewer hours than physicians in other fields.
E) anesthesiology has become a trendy profession.

Question 27

Physicians' fees have risen rapidly in the face of an expanding supply of physicians. Which of the following reasons best explains this phenomenon?

A) Restrictions on advertising enable established physicians to keep new, entering physicians from competing for their customers by charging lower prices.
B) Fees charged by physicians are fixed by the government.
C) Restrictions on advertising have led to the proliferation of local monopolies within the medical profession.
D) Restrictions on physicians' freedom to relocate within certain geographic boundaries have led to price fixing within the medical profession.
E) The demand for physicians' services has steadily declined over the past three decades.

Question 28

In contrast to other markets, in the health care market a new technology can increase the price of health care. Which of the following best explains what causes this result?

A) Suppliers of technology are reluctant to share cost savings with health care professionals.
B) Suppliers of health care services are reluctant to share cost savings with the ultimate patient.
C) To date there have been no cost-saving technologies discovered in the health care industry.
D) The new technologies are cost-increasing innovations, and because costs are not paid by the users, the increased technology increases demand for that kind of care.
E) In the health care industry, new technologies cause the supply curve to shift upward, increasing the price.

Question 29

What is the fastest-growing health care-expenditure category in recent years?

A) Cancer treatment
B) AIDS treatment
C) Prescription drugs
D) Hospital administration
E) Heart attack treatment and prevention

Question 30

The only two areas of medicine where prices have fallen and quality has risen are:

A) cancer treatment and AIDS treatment
B) Lasik eye surgery and plastic surgery
C) Lasik eye surgery and Alzheimer's treatment
D) plastic surgery and cardiac treatment
E) cancer treatment and Alzheimer's treatment

Question 31

The highest-paid physician is likely to practice in the area of

A) psychiatry.
B) cardiac surgery.
C) obstetrics and gynecology.
D) family medicine.
E) pediatrics.

Question 32

If health care is allocated by the market system, then

A) only the wealthy will get the best health care.
B) those willing and able to pay will get the health care.
C) the poor will not get the best health care.
D) those needing the health care the most will get the health care.
E) those wanting the health care the most will get the health care.

Question 33

According to the text, what makes health care different from any other good or service is that

A) there is no scarcity of health care.
B) people do not have to make choices when it comes to health care.
C) the demand curve for health care does not slope down.
D) the supply of health care does not slope up.
E) people feel that they have an inalienable right to health care.

Question 34

For the past 25 years, the ratio of physicians to the population they serve has

A) declined steadily as doctors give up their practices.
B) increased in hospital settings but declined for the doctor with his or her own office.
C) increased steadily.
D) declined steadily as doctors chose to practice abroad.
E) been fairly stable; whereas some areas of specialty have many more doctors per capita, others have many fewer across the board.

Question 35

Which of the following is the most significant reason for the increased demand for medical care?

A) Medicare and Medicaid programs have increased individuals' ability to pay for medical services.
B) The average age of the population has decreased.
C) The elderly population's share of medical expenditures has decreased.
D) Medical technology has not improved significantly over the past decades.
E) The number of nursing homes constructed annually has risen.

Question 36

The demand for a good or service rises if at every price people are willing and able to purchase more than they did previously. The reason that the demand for health care has risen is that

A) the third-party payment system has increased people's willingness to purchase more.
B) the third-party payment system has increased people's ability to purchase more.
C) the price of health care has fallen due to technological change.
D) the quality of health care has risen.
E) the price of health care has fallen while the quality has risen.

Question 37

All natural resources are

A) renewable.
B) exhaustible.
C) nonrenewable.
D) nonexhaustible.
E) classified as renewable or nonrenewable

Question 38

According to the text, changes to eliminate most of the problems the United States is experiencing in the market for health insurance would include all of the following except:

A) eliminating the third-party payer system.
B) replacing the employer-based system
C) eliminating the state health insurance regulations that prevent people from purchasing health plans available in other states
D) eliminating restrictions on doctors competing across state lines
E) instituting a centrally-planned system.

Question 39

Which of the following is not a consequence of Medicare and Medicaid?

A) Increased demand for medical services
B) Decreased price elasticity of demand
C) Increased ability of the elderly to pay for medical services
D) Reduced demand for health care
E) Increased ability of the poor to pay for medical services

Question 40

Which of the following is considered a nonrenewable natural resource?

A) Coal
B) Trees
C) Animals
D) Rivers
E) None of these is a nonrenewable resource

Question 41

Which of the following is not typical (behavior) in a drug cartel?

A) The enforcer in the drug cartel literally destroys the errant supplier.
B) Drug suppliers want to alter the demand curves for their product, making them more price inelastic and shifting them out.
C) Suppliers reduce their costs by bribing and sometimes assassinating officials.
D) Suppliers would like to see drugs legalized.
E) None - all of these are typical of a drug cartel.

Question 42

The federal, state, and local governments combined spend about ____ per year on "the war on drugs".

A) $50 million
B) $500 million
C) $1 billion
D) $10 billion
E) $30 billion

Question 43

Because the demand for most illegal drugs is highly inelastic, the increased costs due to government's War on Drugs is

A) minimized.
B) is shifted from addicted consumers to casual consumers.
C) passed onto customers.
D) a negative externality.
E) a nonrenewable cost.

Question 44

If the market demand for illegal drugs consists of addicts and those who might experiment with the drug at the right price (casual users), we know that

A) only the addict will get the drugs.
B) both the addict and the casual user are likely to get the drugs.
C) the seller will have to advertise to earn a profit.
D) the seller will want to have the drugs legalized.
E) the seller will ensure that everyone gets the same amounts of the drug.

Question 45

An illegal drug dealer will maximize profit by providing and selling the quantity of drugs where

A) the greatest number of consumers can be derived.
B) marginal revenue equals marginal cost.
C) the price is maximized.
D) private costs equal social costs.
E) private property rights are best defined.

Question 46

If the market demand for illegal drugs consists of addicts and those who might experiment with the drug at the right price (casual users), we can say that the seller would

A) price discriminate by charging the addict more than the casual user.
B) price discriminate by charging the addict the same as the casual user.
C) price discriminate by charging the casual user more than the addict.
D) not be able to sell any drugs.
E) lose money.

Question 47

The market can deal with an externality over time if

A) the external costs and benefits are not internalized.
B) private property rights are well defined.
C) government intervention corrects the external costs and benefits.
D) public interest group(s) force the externality to be corrected.
E) the socially optimal amount is produced.

Question 48

Which of the following is the best example of a renewable resource?

A) Trees
B) Minerals
C) The ozone layer in the atmosphere
D) Crude petroleum
E) Library book

Question 49

If the market demand for illegal drugs consists of addicts and those who might experiment with the drug at the right price (casual users), we can say that the

A) market demand curve is almost vertical.
B) demand curve by casual users is inelastic.
C) demand curve by casual users is perfectly inelastic.
D) demand curve by casual users is perfectly elastic.
E) demand curve by casual users is elastic.

Question 50

At equilibrium, the yearly rate of increase in the price of a nonrenewable natural resource will

A) equal zero.
B) approach infinity.
C) equal the increase in the cost of extracting the resource.
D) equal the rate of return on investments of equivalent risk.
E) equal the increase in the cost of extracting the resource plus any taxes.

Question 51

In Zimbabwe, private individuals are allowed to own elephants, to raise them, and then to butcher them and sell the parts. The supply of elephants in Zimbabwe has risen since this policy began because

A) the government has forced the private individuals to conserve.
B) the profit motive induces the private individuals to ensure that while they earn profits today they will also have sufficient resources to earn profits in the future.
C) the profit motive induces the private individuals not to purchase as many elephants.
D) other countries are supplying elephants to the Zimbabwe farmers.
E) neighboring elephant herds are migrating to Zimbabwe.

Question 52

In the case of a nonrenewable resource, other things being equal,

A) the higher the interest rate is, the lower present production is, and the higher future production will be.
B) the lower the interest rate is, the lower present production is, and the higher future production will be.
C) the higher the interest rate is, the lower present production is, and the lower future production will be.
D) the lower the interest rate is, the higher present production is, and the higher future production will be.
E) the lower the interest rate is, the lower present production is, and the lower future production will be.

Question 53

Because there is a finite supply of a nonrenewable resource, as amounts of the resource are consumed,

A) the price of the resource rises.
B) the price of the resource falls.
C) the price of the resource rises to infinity.
D) the price of the resource falls to zero.
E) the price of the resource rises until it equals the present value of future resource amounts.

Question 54

Over time, the supply of nonrenewable resources

A) shifts to the left.
B) is constant.
C) increases as demand increases and price increases.
D) shifts to the right.
E) depends on the demand for substitutes.

Question 55

If the market demand for illegal drugs consists of addicts and those who might experiment with the drug at the right price (casual users), we can say that the

A) market demand curve is almost horizontal.
B) demand curve by addicts is inelastic.
C) demand curve by casual users is inelastic.
D) demand curve by addicts is perfectly elastic.
E) demand curve by addicts is elastic.

Question 56

Prohibition has not

A) increased costs.
B) led to more potent forms of drugs in use.
C) caused increased levels of crime.
D) led to higher crime.
E) None - prohibition has resulted in all of these.

Question 57

If the interest rate decreased, we would expect the supply of renewable resources to ____ and the supply of nonrenewable resources to ____.

A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase
E) decrease; remain unchanged

Question 58

In the market for a nonrenewable natural resources,

A) supply will decrease with decreases in the accessibility of the resource.
B) the supply curve is negatively sloped, reflecting the fact that there is a limited quantity available.
C) the equilibrium price is likely to decrease with reductions in the accessibility of the resource.
D) demand is a relationship identifying the willingness of resource owners to extract the resource from its natural state.
E) technological advances that lower the cost of extracting the resource have a tendency to increase the equilibrium price.

Question 59

Given supply and demand curves for a nonrenewable natural resource in a competitive market, other things being equal, a shift of the supply curve to the left will

A) reduce the price of the natural resource.
B) reduce equilibrium quantity more if demand is inelastic than if demand is elastic.
C) reduce equilibrium quantity more if demand is elastic than if demand is inelastic.
D) increase both the price and quantity supplied of the resource.
E) increase the number of producers willing and able to supply the resource.

Question 60

The market for illegal drugs

A) is nonexistent.
B) exists only in the United States.
C) exists only in Columbia.
D) determines the price of illegal drugs.
E) cannot function due to the War on Drugs.

Question 61

Economists do not disagree on the role government should play in the economy.

Question 62

Suppose two types of students, those from rural areas and those from urban areas, apply to college. There are only two types of performances, excellent and poor. It has been found that a higher percentage of urban students perform poorly than do rural students. The colleges decide to admit only students applying from rural areas. This policy could be referred to as

A) employer discrimination.
B) employee discrimination.
C) statistical discrimination.
D) consumer prejudice.
E) productivity bias.

Question 63

When the free market reacts to a sudden demand decrease, the equilibrium price and quantity both decrease, some firms exit while others reduce output, but only after a considerable time period.

Question 64

In the market system, people employ their talents and resources where they have the lowest value.

Question 65

Discrimination on the basis of characteristics that have nothing to do with one's job performance is ____ in a market in which entry is ____.

A) costly; easy
B) costly; hard
C) not costly; easy
D) not costly; hard
E) costly; impossible

Question 66

Legalizing a drug such as cocaine would

A) decrease significantly the price.
B) have minimal effect on consumption if demand is price inelastic.
C) allow the government to impose a tax to keep prices high.
D) allow the government to collect revenue that is currently flowing into the hands of drug cartels.
E) do all of these.

Question 67

There is universal agreement that Americans have a right to health care.

Question 68

John Maynard Keynes, the leading economist of the 1930s, believed that intervening in free markets will cause inefficiencies to develop, make the situation worse, and create additional problems.

Question 69

The market for medical care is a free, unregulated market.

Question 70

The laws of economics do apply to the medical arena, but they have simply not been allowed to operate fully.

Question 71

In a free market system, only those willing and able to purchase health care will receive health care.

Question 72

In a market system, those who own the most highly valued resources have the highest incomes.

Question 73

Health care spending does not vary among groups in the U.S. population.

Question 74

The health care restrictions and regulations prevent the entry and exit of firms and prevent the effect of competition on prices.

Question 75

If employers have imperfect information about job applicants, it may be rational for them to use

A) employer prejudice.
B) worker prejudice.
C) consumer prejudice.
D) statistical discrimination.
E) all of these.

Question 76

The argument between free market economists and non-free market economists centers on the speed with which a free market adjusts to changes.

Question 77

The observation that in many occupations only green people are employed while in others only purple people are employed is evidence that

A) discrimination has forced the purples and greens into the different occupations or that human capital differences may have accounted for the crowding into the different occupations.
B) employer discrimination has forced the crowding of the occupations.
C) purples have more children than greens.
D) purples have higher productivity than greens due to the human capital that purples have acquired.
E) statistical discrimination has forced the purples and greens into the different occupations.

Question 78

Free market economic theory was responsible for the recovery from the Great Depression in 1930.

Question 79

The employer-based health care system is very efficient.

Question 80

The third-party payment system allows many who would not otherwise be willing and able to purchase health care to be able to purchase the care.